It is the last month of the Financial Year 2017-18, and as per the provisions of the Income Tax Act, both tenants and landlords are required to fulfill their tax obligations to save tax as well as avoid penalties by the Income Tax Department. The I-T Department, in fact, has already started advising people through its tweets that individuals and Hindu Undivided Families (HUFs) paying rent of more than Rs 50,000 a month should deduct TDS (Tax Deducted at Source) @5% under Section 194-IB of the I-T Act at the time of credit of rent for the month of March 2018.
After deducting TDS, tenants are also required to upload details of the tax deducted in the Form No. 26QC on the TIN website (www.tin.nsdl.com). Like tenants, landlords are also required to fulfill their tax responsibilities and complete their paperwork.
“As the financial year 2017-2018 draws to a close, it is important to complete all your paperwork and documents before March 31 to avail all the tax-related benefits and avoid the wrath of I-T authorities as well as the last-minute rush at the time of filing of returns,” says CA Abhishek Soni, Founder, tax2win.in.
In order to know about what paperwork is required, let us first understand here the responsibilities of both the tenant and the landlord.
Responsibilities of tenants and their paperwork:
For claiming the HRA exemption, you need to submit the rent receipts for all the months as a proof of rent payment to your HR/Accounts department. You must ensure that all the rent receipts are signed. There is, however, no set format for the rent receipts prescribed.
Additionally, “if cash payment is more than Rs 5000 per receipt, a revenue stamp is required to be affixed on rent receipts. However, if the rent is paid through cheques, then revenue stamp is not required. Practically, it has been observed that people submit fake rent receipts, even when they are not living in a rented accommodation. So, to counter this, HR departments have started asking for rent agreements apart from rent receipts for giving HRA benefits. Therefore, keep a copy of rent agreement handy,” advises Soni.
Further, if the annual rent paid exceeds Rs 1,00,000, it is now mandatory to report the PAN of the landlord to claim the HRA exemption.
From FY2017-18, the tenant is also required to deduct TDS @ 5% of the entire rent paid once in a financial year if the rental payment exceeds Rs 50,000 a month. It can be either deducted at the time of credit of rent to the landlord for the last month of the financial year or the last month of the tenancy if the property is vacated during the year, whichever is earlier. The tenant has to submit the tax deducted along with the PAN of the landlord in the Form 26QC on the TIN website within 30 days from the end of the month in which the deduction has been made.
The tenant is also required to download the TDS certificate from the TRACES website ( http://www.tdscpc.gov.in) within 15 days of uploading the Form No 26QC and issue it to the landlord in Form No 16C.
Responsibilities of landlords and their paperwork:
If you are a landlord, you must declare your rental income in the income tax return each year. However, you can claim certain expenses to offset against your rental income and reduce your tax burden. For example, interest payments , municipal taxes etc.
Also, it is your responsibility to issue the signed rent receipts to the tenant irrespective of the rent amount as the Income Tax Officer may ask for them at a later date from the tenant.
Also, “if you have taken a home loan, then keep the bank statements ready for the EMIs paid during the FY2017-18 and claim tax benefits at the time of filing the tax return,” says Soni.
Rent agreement also plays a very important role in tenancy. Here are 4 things which should be checked at the time of drafting rent agreements :
# Rent agreement should be on a Rs 500 stamp paper or as per the stamp rate prevailing in a particular state.
# Rent agreements can be entered into for 11 months only. For more than 12 months, rent agreements are not entered into, instead a lease deed has to be preferred which needs registration.
# Every year, the rent agreement is renewed after 11 months with the increased rent.
# Both the landlord and the tenant are required to serve the notice period as stated in the agreement.